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Telecom Stock Roundup: Sprint to Divest Boost, Nokia's 5G Deals & More

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In the past five trading days, the initial downtrend of the telecom stocks was replaced by a steep ascent in the latter half of the week as the firms seemed to shake off the tariff concerns for a renewed focus on 5G deployment across the country. With no visible respite from the tariff war, the industry is probably bracing for a long battle of trade restrictions by fortifying its 5G resources and lapping up spectrum from government auctions.

Leading firms like AT&T and T-Mobile together have committed to spend nearly $1.8 billion on high-frequency spectrum for 5G networks in a Federal Communications Commission auction, with the former winning bids in the 24GHz auction worth $982.5 million for 831 licenses and the latter snapping bids worth $803.2 million for 1,346 licenses. Several other firms are also in the fray with U.S. Cellular pledging to spend $126.6 million for 282 licenses and Windstream likely spending $20.4 million for 116 licenses.   

The strategic move seems to be the call of the hour to allay the element of uncertainty creeping within the rank and files of the telecom sector. Despite the Trump administration temporarily easing some trade restrictions on Huawei, several European firms followed suit and have either suspended their deals or cancelled pre-orders with the Chinese smartphone manufacturer. This has apparently polarized the industry into two distinct halves, virtually triggering intense technology warfare between the two superpowers of the global economy.

On the other hand, China has also scaled up the pace for 5G rollouts in the country by offering commercial licenses to China Telecom, China Mobile, China Unicom and China Radio and Television. Experts widely view this counter move as a possible ploy by the communist nation to thwart the competitive advantage of U.S. firms in the 5G race. Amid the hullabaloo, Huawei has reportedly signed a deal with Russian telecom company MTS to develop a 5G network in the country over the next year. This has given a shot in the arm to the beleaguered Chinese smartphone manufacturer.

Meanwhile, several rural telecom carriers continued to show their resentment about the trade restrictions on cheap Huawei equipment. The ban has effectively forced various small and independently-owned telecom operators to replace the existing equipment with other relatively expensive alternatives, thereby increasing their operating expenses, or risk withdrawal of support services from Huawei. This, in turn, has jeopardized the sustainability of various firms, putting thousands of jobs at risk. The U.S. lawmakers have already introduced a bill to provide up to $700 million to the telecom carriers, particularly in rural areas, to avert such crisis.   

Regarding company-specific news, divestment decisions, 5G deals and strategic collaboration primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     According to industry grapevines, T-Mobile US Inc. (TMUS - Free Report) and Sprint Corporation’s (S - Free Report) strategic decision to divest prepaid wireless service — Boost — to gain regulatory approvals for their merger has stirred up interest of potential suitors. The latest firm that reportedly entered into the buyout fray is Inc. Although spokespersons from the related entities have declined to comment on the buzz, Amazon’s penchant for unconventional business ventures gives us enough reason to take note of such developments.

In order to win over the anti-trust rules and secure regulatory approvals, the companies decided to divest Sprint’s prepaid wireless brand Boost. This is not likely to harm the combined company much as T-Mobile has a successful prepaid brand — Metro (formerly Metro PCS). Metro reportedly has 21.1 million prepaid customers while its biggest competitor AT&T Inc. (T - Free Report) has 17.2 million. (Read more: T-Mobile & Sprint to Divest Boost: Amazon in Buyout Fray?)

2.    Nokia Corporation (NOK - Free Report) has reportedly leapfrogged into the leading position in the race for commercial 5G deals across the globe, leaving behind the much-fancied Chinese telecom equipment manufacturer, Huawei. The company has also staved off competition from Swiss rival Ericsson to steer ahead in the three-way race.

To date, Nokia has received about 42 commercial 5G deals worldwide from diverse firms, at an average deal rate of one major contract each week since March end. Notably, media reports put the tally for Huawei’s and Ericsson’s current commercial 5G deals at 40 and 19, respectively. (Read more: Nokia Gathers Solid Pace in 5G Commercial Deals Across Globe)

3.   Frontier Communications Corporation (FTR - Free Report) recently announced that it has inked a deal to sell its assets and operations in Washington, Oregon, Idaho and Montana to WaveDivision Capital, LLC and Searchlight Capital Partners, LLC. The transaction, valued at $1.352 billion in cash, is subject to regulatory approvals by the Federal Communications Commission, the U.S. Department of Justice, and the Committee on Foreign Investment in the United States.

The sale proceeds are likely to be utilized to pay off the company’s financial obligations, while strengthening its liquidity position. As of Mar 31, 2019, it had $119 million in cash and equivalents with $16,526 million of long-term debt. At the end of first-quarter 2019, Frontier Communications’ leverage ratio was 4.76:1. (Read more: Frontier Communications to Sell Operations in Four States)

4.     Juniper Networks, Inc. (JNPR - Free Report) recently announced that it has been selected by BT Group plc — a renowned global service provider — to deliver its Network Cloud infrastructure initiative. Financial terms of the deal were not disclosed.

Markedly, the move to a single cloud-driven network infrastructure will likely allow BT to offer wider range of services, more efficiently to customers in the United Kingdom and around the world. It is expected to help BT’s Network Cloud rollout while enabling a more flexible, virtualized network infrastructure that can deliver the technology requirements of businesses. (Read more: Juniper to Help BT Modernize Network Cloud Infrastructure)

5.     Viasat, Inc. (VSAT - Free Report) recently announced that it has teamed up with Visiontec — a Brazilian satellite products distributor — with a goal to bring high-speed satellite Internet to Brazil. The move underscores the satellite & wireless networking technology provider’s long-term commitment to make advanced Internet services available to every community across the country.

As a result, Viasat now has a local partner to help install its customer premises equipment, which provides quick installation of broadband Internet and Wi-Fi capabilities through Visiontec’s network of dealers and installers. The company’s services team will likely work with Visiontec to train technicians and dealer teams to rapidly address Brazil’s Internet demands with hassle-free customer service experience. (Read more: Viasat Partners Visiontec for High Speed Internet in Brazil)

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and during the past six months.

In the past five trading days, SBA Communications was the biggest gainer with its share price increasing 7.7% while Verizon was the biggest decliner with its stock down 2%.

Over the past six months, Harris has been the best performer with its stock appreciating 29.5%, while Juniper was the biggest decliner with its shares falling 4.5%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 2.6% while the S&P 500 rallied 4.4%.

What’s Next in the Telecom Space?

In addition to product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China counter each other in the tit-for-tat tariff war.

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